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Subject: AU housing bubble - $1.7 trillion in loans. rss

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Chengkai Yang
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http://www.news.com.au/finance/economy/australian-economy/is...

This is pretty similar to the US before the great depression. TL;DR people used a house as collateral for another house banking on rising prices and an ROI. Repeat several times and wait for a stiff breeze as it's all massively over leveraged. $1.7 trillion is reportedly tied up in these risky loans, something that will definitely spill over onto everyone else if/when it does implode.

Article doesn't mention what currency so I'm assuming its AUD or ~1.36 trillion USD.
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Andre
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From the OP article;

Australia now has the second highest level of household debt in the world, with a debt-to-income ratio of 190 per cent, and at least 60 per cent of banks’ loan books are related to housing.

Wow, that is an outrageous percentage of the banks eggs in one basket. Looks like they might be headed for a world of hurt. For a different reason than the U.S. Housing Bubble of recent memory, but nonethlese, probably as harsh.
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Shawn Fox
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I'm selling off two or three of my rental properties as their leases end this year / early next year. I can get a lot more from selling them than I can make in rent so I figure it is time to take some money off the table. Prices for small single family homes in Dallas have gone up by over 60% in the last 4 years which just isn't sustainable. I'm not sure what I'm going to do with the cash either though, the stock market is looking pretty frothy right now. Most likely I'll just use the proceeds to pay off the loans on my other properties.
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Wendell
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Australians have been pretty highly leveraged for quite some time. They have a couple of advantages, though - specifically a banking sector that has better oversight so reserve ratios etc are better. But yeah, real estate prices there have gone from whacky to more whacky.
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Shawn Fox
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https://www.economist.com/blogs/economist-explains/2017/09/e...

There is an article in today's economist that says Australia just set the record of 26 consecutive years of economic growth without a recession. That includes over a decade of budget surpluses and no government debt (net). Quite an impressive run.
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sfox wrote:
https://www.economist.com/blogs/economist-explains/2017/09/e...

There is an article in today's economist that says Australia just set the record of 26 consecutive years of economic growth without a recession. That includes over a decade of budget surpluses and no government debt (net). Quite an impressive run.

Yeah, somehow single payer health care wasn't the end of the world.

I think the economic figures are a bit misleading. A lot of that budget surplus is from stamp duty (tax on real estate sales), and as the OP notes we are in a crazy housing bubble. Also we have had a resources boom prior to that. I expect there will be a huge crash soon, at which point I will buy a really cheap house.
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Chengkai Yang
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sbszine wrote:
sfox wrote:
https://www.economist.com/blogs/economist-explains/2017/09/e...

There is an article in today's economist that says Australia just set the record of 26 consecutive years of economic growth without a recession. That includes over a decade of budget surpluses and no government debt (net). Quite an impressive run.

Yeah, somehow single payer health care wasn't the end of the world.

I think the economic figures are a bit misleading. A lot of that budget surplus is from stamp duty (tax on real estate sales), and as the OP notes we are in a crazy housing bubble. Also we have had a resources boom prior to that. I expect there will be a huge crash soon, at which point I will buy a really cheap house.


Best of luck with that. I keep hoping that'll happen with CA but I don't think it'll happen short of another big one or some US antitrust/regulations against the tech sector that'll fragment the corps and get them to consider relocating.
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Oliver Dienz
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wifwendell wrote:
Australians have been pretty highly leveraged for quite some time. They have a couple of advantages, though - specifically a banking sector that has better oversight so reserve ratios etc are better. But yeah, real estate prices there have gone from whacky to more whacky.

Do you mean "better capital ratios"? A bank can have a 100% reserve ratio and be overleveraged.
 
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Oliver Dienz
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sfox wrote:
https://www.economist.com/blogs/economist-explains/2017/09/e...

There is an article in today's economist that says Australia just set the record of 26 consecutive years of economic growth without a recession. That includes over a decade of budget surpluses and no government debt (net). Quite an impressive run.

Guess who financed that economic growth when the government is running surpluses? No wonder households are big in the hole. Sectoral balances always hold:



Worthwhile read from an Australian economist: http://bilbo.economicoutlook.net/blog/?p=11189&cpage=1
 
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Wendell
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odie73 wrote:
wifwendell wrote:
Australians have been pretty highly leveraged for quite some time. They have a couple of advantages, though - specifically a banking sector that has better oversight so reserve ratios etc are better. But yeah, real estate prices there have gone from whacky to more whacky.

Do you mean "better capital ratios"? A bank can have a 100% reserve ratio and be overleveraged.


Yeah - capital adequacy is it. I was too quick!
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Walt
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[Boring investment wall o' text: do not read while driving.]

sfox wrote:
I'm selling off two or three of my rental properties as their leases end this year / early next year. I can get a lot more from selling them than I can make in rent so I figure it is time to take some money off the table. Prices for small single family homes in Dallas have gone up by over 60% in the last 4 years which just isn't sustainable. I'm not sure what I'm going to do with the cash either though, the stock market is looking pretty frothy right now. Most likely I'll just use the proceeds to pay off the loans on my other properties.

You may get a bump from relocating Houstonians and incoming construction workers (or they will buy a little more inland, those people will ripple out, and eventually the price rise will get to Dallas). (They may or may not return to Houston after recovery; NOLA hasn't recovered all its population from Katrina.)
___

Try going to Yahoo Finance and looking up the S&P 500: https://finance.yahoo.com/chart/^GSPC

Right to left, change the view to show...
Settings: Y-axis logarithmic [so all x% changes look the same over time]
[Time period]: Max [you may need to click twice]
Indicator: Moving Average (Type: simpleEexponential) [to match the log scale]

As you can see, the S&P 500 has its down times, but so does anything, including real estate. So far, it's always recovered. Every year, stocks that have declined out of the 500 are sold and replaced with stocks with higher market caps; if you use an ETF, this is not a taxable event since you're buying the fund, not the stocks in it.

Draw your own conclusions.

Several S&P 500 ETFs (Exchange Traded Funds) exist, and should cost you under $10 per trade at a discount broker, any amount, any trading day, any second the market is open--maybe even off hours, but I haven't done it. (You can definitely enter an order at any time for execution later.) VOO has a lower expense ratio than SPY, and SPY can be a little volatile as people move money in and out. Either will give you about 2% a year in dividends (1/2% every quarter, 15% tax) plus almost all the price appreciation you see in the graph (graph VOO and SPY if you wish). If you hold for over a year, the capital gain is also taxed at 15%. Warren Buffett recommends VOO, and his will requires his fortune to be invested in VOO, not his own company, Berkshire Hathaway (BRK-A, BRK-B).

Why not buy individual stocks? Nokia and Blackberry used to be hot stocks; not so much any more. Sears was solid; Amazon is killing them. Coal companies? Toasted. GM? Road kill in 2008 or so. Pets.com? .COM bubble. You have to be close to psychic to pick individual winners, and your emotions are your enemy; so are Wall Street's emotions and the emotions of your investment's (one-time?) customers.

You need to be vetted if you want a margin (borrowing) account--get in more trouble faster! (It can be handy if used carefully; even if you use margin to buy a car, I think it's an investment expense, deductable.) Cash or stocks in the account are your collateral. I think that lets you short stocks (sell what you don't own, betting it'll go down), but it might be still a different test to meet. Remember, "He who sells what isn't his'n/Must buy it back or go to pris'n."

You may be able to buy options, for example to insure against losses or price rises. SPY might be more versatile in that--I haven't looked into it. In theory, the options should be priced so you can't make money on them, but that may not be the case once you hit the long term capital gains periods--though, that's not a trick you can repeat frequently. You can use options as crash insurance, but expect only the insurance company to make money, like any insurance.

You have to qualify even more strictly for options, to insure the hoi-polloi don't make money--I kid: options can be dangerous, especially since for historic reasons, one option is for 100 shares of stock; even experienced investors and brokers have ended up with 99 too many options or only 1% of what they wanted. You can buy an option, giving you the right to buy or sell 100 shares at a fixed price, or you can sell an option, requiring you to buy or sell 100 shares at a fixed price if the option is exercised, which it will be only if it hurts you--but you get to keep the option sales profit.

A broker, even a discount broker, can help you through the process. Try a local Scottrade or Ameritrade office; they're pretty widespread (and the same company at this point).

This is not investment advice or tax advice, just recounting what I think I've learned.
 
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Paul Doherty
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sfox wrote:
I'm selling off two or three of my rental properties as their leases end this year / early next year. I can get a lot more from selling them than I can make in rent so I figure it is time to take some money off the table. Prices for small single family homes in Dallas have gone up by over 60% in the last 4 years which just isn't sustainable. I'm not sure what I'm going to do with the cash either though, the stock market is looking pretty frothy right now. Most likely I'll just use the proceeds to pay off the loans on my other properties.


I'm in the Dallas suburbs and am also a landlord. I almost decided to sell one of mine but the person there wanted to rent another year so I decided not to. It's an interesting market to be sure. Though I'm not sure we'll see a top anytime real soon; seems more likely growth in value will slow down. Demand is still pretty high and builders aren't building anything less than 280K or up. So rental properties, which are generally on the smaller side and less than 300K, will have a market almost no matter what.
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Jorge Montero
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sbszine wrote:
sfox wrote:
https://www.economist.com/blogs/economist-explains/2017/09/e...

There is an article in today's economist that says Australia just set the record of 26 consecutive years of economic growth without a recession. That includes over a decade of budget surpluses and no government debt (net). Quite an impressive run.

Yeah, somehow single payer health care wasn't the end of the world.

I think the economic figures are a bit misleading. A lot of that budget surplus is from stamp duty (tax on real estate sales), and as the OP notes we are in a crazy housing bubble. Also we have had a resources boom prior to that. I expect there will be a huge crash soon, at which point I will buy a really cheap house.


You also have some of the best monetary policy in the world. It's amazing how much of a difference it makes.
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hibikir wrote:
You also have some of the best monetary policy in the world. It's amazing how much of a difference it makes.

Indeed! I remember Wayne Swan being pilloried in the conservative media on the same day he was awarded finance minister if the year.

But yeah, social democracy, nanny state, no guns, and 26 years of economic growth. Sorry libertarians.
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